IBT portfolio company Terns acquired by Merck

International Biotechnology Trust PLC (AIM:IBT) has announced that its portfolio company, Terns Pharmaceuticals, has entered into an agreement to be acquired by Merck for up to $6.7 billion. This acquisition marks a significant milestone for IBT, as Terns Pharmaceuticals, a clinical-stage oncology company, represented 3.64% of IBT's Net Asset Value as of March 24, 2026. The acquisition terms stipulate that Terns shareholders will receive $53 per share in cash, which is a 6% premium to the closing share price on March 24 and approximately 31% above the 60-day volume-weighted average stock price on the same date. This transaction is indicative of the robust merger and acquisition activity currently taking place within the biotechnology sector, particularly as large pharmaceutical companies seek to replenish their pipelines amid impending patent expirations.

IBT's initial investment in Terns was made in March 2025 at a price of approximately $3 per share, yielding a remarkable return multiple of approximately 17.7x. The acquisition of Terns by Merck is particularly noteworthy as it follows another recent M&A event involving IBT's portfolio, with Day One Biopharmaceuticals being acquired by Servier earlier in March 2026. This pattern underscores the ongoing consolidation within the biotechnology space, driven by the need for larger firms to secure innovative therapies and maintain competitive advantages. The portfolio managers of IBT, Ailsa Craig and Marek Poszepczynski, have emphasized that their investment strategy focuses on identifying companies with attributes that make them attractive to potential acquirers, a strategy that has evidently paid off in this instance.

From a financial perspective, the acquisition is expected to enhance IBT's Net Asset Value, with the updated valuation of its holding in Terns to be reflected in the NAV as of March 25, 2026, and reported on March 26, 2026. Given that Terns constituted a notable portion of IBT's NAV, this acquisition could lead to a substantial increase in the trust's overall valuation. As of the latest figures, IBT's market capitalisation stands at GBP 276.6 million, which positions it well within the mid-cap tier of the AIM market. The successful exit from Terns, coupled with the ongoing M&A activity in the sector, suggests a positive outlook for IBT's future investments and potential returns for shareholders.

In terms of valuation, the acquisition price of $53 per share for Terns translates to a valuation that is significantly above its initial investment cost. This acquisition price reflects a premium that is consistent with recent trends in the biotechnology sector, where innovative companies are being valued at high multiples due to their potential for future growth. For comparative purposes, IBT's market capitalisation of GBP 276.6 million can be assessed against its direct peers, such as ASC (LSE:ASC), which has a market cap of GBP 287.8 million. Both companies are positioned similarly within the biotechnology investment landscape, although ASC's focus may differ. The valuation metrics indicate that IBT is well-positioned relative to its peers, particularly given the substantial return generated from its investment in Terns.

IBT's current cash balance and funding position remain critical as it navigates the aftermath of this acquisition. The trust has historically maintained a prudent approach to its capital structure, ensuring that it has sufficient liquidity to support ongoing investments and operational needs. The successful exit from Terns should bolster its cash reserves, thereby enhancing its funding runway for future investments. However, it is essential to monitor any potential dilution risks that may arise from future capital raises or share issuances, particularly as the trust seeks to capitalize on the favorable market conditions for biotechnology investments.

The execution track record of IBT has been commendable, with management consistently meeting or exceeding expectations regarding portfolio performance and strategic direction. The acquisition of Terns aligns with IBT's historical focus on high-potential biotechnology firms, and the successful realization of this investment further validates the trust's investment thesis. However, investors should remain vigilant regarding the inherent risks associated with the biotechnology sector, including regulatory hurdles, market volatility, and the competitive landscape. The current geopolitical climate may also introduce additional uncertainties that could impact future investment decisions.

Looking ahead, the next measurable catalyst for IBT will be the updated NAV, which is expected to be reported on March 26, 2026. This update will provide clarity on the impact of the Terns acquisition on IBT's overall valuation and will be closely watched by investors. The ongoing M&A activity within the biotechnology sector suggests that further opportunities may arise for IBT to enhance its portfolio and deliver value to shareholders.

In conclusion, the acquisition of Terns Pharmaceuticals by Merck for up to $6.7 billion represents a significant development for International Biotechnology Trust PLC, with the potential to materially enhance its Net Asset Value. The transaction underscores the robust M&A activity in the biotechnology sector and highlights IBT's successful investment strategy. This announcement is classified as significant, given its potential impact on valuation, funding outlook, and the trust's positioning within the competitive landscape. Investors should remain attentive to the upcoming NAV update and the broader implications of ongoing consolidation in the biotechnology sector.

Key insights

• ●Terns acquisition offers $53 per share, a 17.7x return since IBT's initial investment.
• ●IBT's NAV update on March 26 will reflect Terns' acquisition impact.
• ●Ongoing M&A activity in biotech suggests further growth opportunities.

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